I have run into this before and there's no real "Fix" for it, the HD is dying. The mechanical parts are failing or it's burning up. I read on these forums that freezing the harddrive may make it work long enough to obtain a bit of data off of it, but if it's mechanical that may not work so well. If there's pertinent data on the drive you can actually pay to have the platters removed and the data read off the drives and backed up on optical disks for you but that costs a kings ransom.
Time to replace the drive
As for the Windows disk, you don't necessarily have to pay for a new OS disk. Your computer came with a valid license key for XP/Vista, so you could legally borrow an install disk as long as you use the key found on the bottom of the laptop and register/activate with MS.
Humans are the only creatures that won't live up to the their potential. Give everything your all. When you die, die on E.
So I ask you, what do you intend to do now?